Barack Obama's hypocrisy on school choice

Cato-at-Liberty points out Barack Obama's hypocrisy on school choice.

After telling a gathering of the American Federation of Teachers that he opposes school voucher programs ... Senator Obama added that: “We need to focus on fixing and improving our public schools; not throwing our hands up and walking away from them.”

Senator Obama sends his own two daughters to the private “Lab School” founded by John Dewey in 1896, which charged $20,000 in tuition at the middle school level last year. Though he says “we” should not be “throwing up our hands and walking away” from public schools, he has done precisely that.

That is his right, and, as a wealthy man, it is his prerogative under the current system of American education, which allows only the wealthy to easily choose between private and government schools. But instead of offering to extend that same choice to all families, Senator Obama wants the poor to wait for the public school system to be “fixed.”

The reason one should favor school choice is that our public school system is a monopoly and monopolies tend to be inefficient. Competition forces institutions to improve or die. Monopoly allows them to stagnate.

America's colleges have to compete with each other, so it is not surprising that our college system is widely considered the best in the world. Our local public school monopolies face almost no competition, so it should not be surprising that America's public school students generally rank quite low on international tests.

Graph: earnings by level of education

Notice that there are two big gaps in the graph. The first is between "some college" and a bachelor's degree. The second is between a master's degree and a doctoral/professional degree.

A discussion about nuclear energy as a solution to global warming

The German magazine Spiegel Online interviews David Crane, the CEO of NRG Energy about nuclear energy:

SPIEGEL ONLINE: Republican presidential candidate John McCain has proposed building 45 new nuclear reactors by 2030 with a longer term goal of 55 more. His Democratic opponent, Barack Obama, is also in favor of more atomic energy. Is the US experiencing a nuclear power renaissance?

David Crane: It's still in the early stages. Clearly, the defining incident when it comes to the acceptance of nuclear energy in Europe was Chernobyl in 1986. But in this country, it was Three Mile Island near Harrisburg, Pennsylvania, which was seven years earlier than Chernobyl and a much less serious incident. You basically have to be 45 or 50 years old in the US to remember Three Mile Island.

SPIEGEL ONLINE: You mean to say that people are beginning to forget about the dangers of nuclear power?

Crane: There is a perception that the American public is ready for nuclear. It's a combination of things, and one of them is generational change. The overriding concern in this country, just like in Europe, is global warming. The recognition by most pragmatic people is that nuclear is the only advanced technology that exists to replace coal-fired power plants on a significant scale. This has jump-started the renaissance. ...

SPIEGEL ONLINE: What should the energy mix of the future look like?

Crane: Obviously, we Americans are the most wasteful people on Earth. Right now, coal produces 50 percent of our power and nuclear 20 percent in the US. It would be nice over time — by 2050, the year most global warming legislation is aimed at — to have these percentages reversed. Right now, the US consumes 4.5 trillion kilowatt hours of electricity. Maybe you can get that down to 4 trillion, but that would demand a huge push towards conservation, which will be very difficult. If you turn all 240 million cars and light trucks in the US to electric-powered vehicles while boosting the share of nuclear power, the amount of carbon emissions that would be saved overall would be enormous.

SPIEGEL ONLINE: Imagining for a moment that so many new nuclear reactors do go on line, what is to be done with all of the radioactive waste? Even after years of debate on the issue, there is still no solution regarding final disposal.

Crane: A lot of people talk about a final solution, and we do need one. But this solution of on-site waste storage is deemed to be safe for a long time. Global warming is an immediate issue that nuclear energy can help solve. We should solve this issue now and solve the nuclear waste issue over the next 200 years.

What exactly is a recession? An answer from the National Bureau of Economic Research

The National Bureau of Economic Research is the official judge of U.S. recessions. There is a myth popularized by the press that it defines a recession as two quarters of declining real GDP. The real answer is a bit more complex. Here is what the NBER has to say:

A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough. Between trough and peak, the economy is in an expansion. Expansion is the normal state of the economy; most recessions are brief and they have been rare in recent decades.

In choosing the dates of business-cycle turning points, we follow standard procedures to assure continuity in the chronology. Because a recession influences the economy broadly and is not confined to one sector, we emphasize economy-wide measures of economic activity. We view real GDP as the single best measure of aggregate economic activity. In determining whether a recession has occurred and in identifying the approximate dates of the peak and the trough, we therefore place considerable weight on the estimates of real GDP issued by the Bureau of Economic Analysis (BEA) of the U.S. Department of Commerce. The traditional role of the committee is to maintain a monthly chronology, however, and the BEA's real GDP estimates are only available quarterly. For this reason, we refer to a variety of monthly indicators to determine the months of peaks and troughs.

The committee places particular emphasis on two monthly measures of activity across the entire economy: (1) personal income less transfer payments, in real terms and (2) employment. In addition, we refer to two indicators with coverage primarily of manufacturing and goods: (3) industrial production and (4) the volume of sales of the manufacturing and wholesale-retail sectors adjusted for price changes. We also look at monthly estimates of real GDP such as those prepared by Macroeconomic Advisers (see http://www.macroadvisers.com). Although these indicators are the most important measures considered by the NBER in developing its business cycle chronology, there is no fixed rule about which other measures contribute information to the process.

The committee's approach to determining the dates of turning points is retrospective. We wait until sufficient data are available to avoid the need for major revisions. In particular, in determining the date of a peak in activity, and thus the onset of recession, we wait until we are confident that, even in the event that activity begins to rise again immediately, it has declined enough to meet the criterion of depth. As a result, we tend to wait to identify a peak until many months after it actually occurs.

Q: The financial press often states the definition of a recession as two consecutive quarters of decline in real GDP. How does that relate to the NBER's recession dating procedure?

A: Most of the recessions identified by our procedures do consist of two or more quarters of declining real GDP, but not all of them. Our procedure differs from the two-quarter rule in a number of ways. First, we consider the depth as well as the duration of the decline in economic activity. Recall that our definition includes the phrase, "a significant decline in economic activity." Second, we use a broader array of indicators than just real GDP. One reason for this is that the GDP data are subject to considerable revision. Third, we use monthly indicators to arrive at a monthly chronology.

Q: Isn't a recession a period of diminished economic activity?

A: It's more accurate to say that a recession—the way we use the word—is a period of diminishing activity rather than diminished activity. We identify a month when the economy reached a peak of activity and a later month when the economy reached a trough. The time in between is a recession, a period when the economy is contracting. The following period is an expansion. Economic activity is below normal or diminished for some part of the recession and for some part of the following expansion as well. Some call the period of diminished activity a slump.

Raise the price of gas!

From Joel Stein, via Greg Mankiw:

I love $4 gas. It makes me appreciate freedom. I watch as the dollars spin and think, "You, Triceratops, did not get squished by an asteroid in vain. You got squished for a $60 drive to Vegas." ...

If MoveOn and Barack Obama really were going to bravely confront America with hard, necessary truths, they'd tell us how great $4 gas has been for us. With public transit use nationally at a 50-year high, traffic dropped 2.1% in the first four months of this year across the country. That mileage reduction — along with people driving smaller cars, and more slowly, to save gas — could mean that 12,000 fewer people will die in traffic accidents this year, according to a study by professors Michael Morrisey at the University of Alabama at Birmingham and David C. Grabowski at Harvard Medical School. Air pollution has been reduced enough, according to UC Davis economics professor J. Paul Leigh, to prevent 2,200 respiratory-related deaths over the last year. Less eating out and more walking and biking could mean a 10% reduction in obesity, according to Charles Courtemanche, an assistant economics professor at the University of North Carolina at Greensboro. And, apparently, higher gas prices also keep econ professors employed. ...

Cheap gas is unfair. Driving creates huge social costs in the form of traffic, health-damaging pollution and global warming that aren't suffered solely by the person buying the gasoline. Governments usually set up idiotic systems to offset such social costs (emissions trading, ethanol subsidies, taco truck regulations) instead of forcing individuals to pay for their own mess by adding a tax to remedy the imbalance. That kind of tax — the most fair kind, really — is called a Pigovian tax, and its use is why gas costs $8 to $10 a gallon in Europe, where they have fewer road deaths even though they drive like complete idiots. ...

If the U.S. were to slowly jack up gas taxes until we're in the $8 range, life would be better. We'd not only be safer and have reduced greenhouse-gas emissions, we'd probably be happier too. Studies show that the only thing that consistently increases personal happiness is social interaction; high gas prices have led to real estate prices falling faster in suburbs and exurbs than in cities, so we may soon have more content downtown-dwellers. Those same studies show that the thing that makes people least happy is commuting, and telecommuting is way up this year. We could use the tax revenue to fund public transportation. And we'd go back to the days when driving a car was a way to show people what a rich jerk you were. In other words, we would no longer need SUVs for that.

OPEC, not speculators, is responsible for rising oil prices

From Fortune Magazine:

The leaders of OPEC have a long list of culprits for high oil prices: the falling dollar, U.S.-Iranian tensions, and shady speculators.

Here's one they seem to forget: OPEC.

The Organization of Petroleum Exporting Countries consistently claims that supply is not a problem - that there's plenty of oil to meet demand.

But last year, as the price of oil nearly doubled, OPEC was actually cutting production. The cartel produced 1.5% less last year despite adding two countries, Angola and Ecuador, to its ranks. That cutback at a time of growing demand helped drive prices up.

"They made a mistake," says Adam Sieminski, chief energy economist for Deutsche Bank, who thinks OPEC's drop in production last year is the No. 1 reason for today's prices. "The Saudis are responsible for trying to manage the world market. They underestimated demand and they overestimated non-OPEC supply."

Harvard economist: "The global economy is a runaway train"

Kenneth Rogoff, Professor of Economics and Public Policy at Harvard and former chief economist at the IMF, says rising commodity inflation is a sign that global economic growth is out of control.

The global economy is a runaway train that is slowing, but not quickly enough. That is what the extraordinary run-up in prices for oil, metals, and food is screaming at us. The spectacular and historic global economic boom of the past six years is about to hit a wall. Unfortunately, no one, certainly not in Asia or the United States, seems willing to bite the bullet and help engineer the necessary coordinated retreat to sustained sub-trend growth, which is necessary so that new commodity supplies and alternatives can catch up.

Instead, governments are clawing to stretch out unsustainable booms, further pushing up commodity prices, and raising the risk of a once-in-a-lifetime economic and financial mess. All this need not end horribly, but policymakers in most regions have to start pressing hard on the brakes, not the accelerator. ...

I am puzzled that so many economic pundits seem to think that the solution is for all governments, rich and poor, to pass out even more checks and subsidies so as to keep the boom going. Keynesian stimulus policies might help ease the pain a bit for individual countries acting in isolation. But if every country tries to stimulate consumption at the same time, it won’t work.

A general rise in global demand will simply spill over into higher commodity prices, with little helpful effect on consumption. Isn’t this obvious? Yes, there is still a financial crisis in the US, but stoking inflation is an incredibly unfair and inefficient way to deal with it. ...

The historic influx of new entrants into the global work force, each aspiring to Western consumption standards, is simply pushing global growth past the safety marker on the speed dial. As a result, commodity resource constraints that we once expected to face in the middle of the twenty-first century are hitting us today. ...

This runaway-train global economy has all the hallmarks of a giant crisis in the making – financial, political, and economic. Will policymakers find a way to achieve the necessary international coordination? Getting the diagnosis right is the place to start. The world as a whole needs tighter monetary and fiscal policy. It is time to put the brakes on this runaway train before it is too late.

Just so readers aren't confused, even though the U.S. economy is currently slowing, it is the exceptional growth in emerging markets that is causing global commodity inflation.

Do tax cuts increase economic growth?

The claim made by politicians who support "supply-side economics" is that tax cuts increase economic growth. In general they do to a point, but the EconoSpeak blog adds a caveat:

The claim that tax cuts lead to more output via incentive effects presumes that we are talking about fiscally neutral reductions in taxes and government spending. What we got from the Reagan and Bush 43 administrations – and what is proposed by McCain – is a reduction in taxes that is much larger than any proposed reduction in government spending (government spending as a share of GDP actually rose under Bush43). The impact of this fiscal stimulus was a reduction in the national savings rate, which lowers long-term growth.

Is housing near a bottom? Here is your answer.

It's the question that everyone keeps asking. Are we near the bottom in the housing market? Well, the red line in the graph shows a century of constant-quality, inflation-adjusted U.S. housing prices. Notice the housing bubble that started around the year 2000.


So, are we near the bottom? Not a chance in hell. We're still much closer to the top.

A proposed solution to America's energy crisis

As a partial solution to America's dependence on foreign oil, U.S. oilman Boone Pickens proposes to build wind farms throughout the Great Plains. The Economist summarizes the Pickens Plan:

AMERICANS spend $700 billion a year on foreign oil. According to one observer, this is an addiction, a crisis, and a trap. The country must pursue alternative energy sources as fiercely as it once shot for the moon. So far, so much liberal boilerplate. The critic in question, however, is a Republican oilman: T. Boone Pickens. As he puts it, in an Okie drawl: “I’ve been an oilman all my life. But this is one emergency we can’t drill our way out of.” He wants America to make a huge investment in wind-power infrastructure. During this election season, he will personally spend $58m to make the case. ...

A report from the Department of Energy said in May that America could build enough wind farms to provide 20% of the nation’s electricity by 2030. The Pickens plan calls for America to meet this goal by building wind farms throughout the windy corridor that runs up the country from Texas to the Dakotas. It would cost $1 trillion to build them, plus another $200 billion to connect them to places where the power is most needed, which lie inconveniently far away from the corridor.

That is a staggering outlay, but it would free up American natural gas, which now generates 22% of the country’s electricity, to be used for motor vehicles. The idea is that Americans could switch en masse to natural gas vehicles, and the country could stop importing so much oil.

From PickensPlan.com: